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capitalisma method of organizing the economy to produce GOODS and SERVICES. Under this ECONOMIC SYSTEM, the means of production are privately held by individuals and firms. Economic decision-making is highly decentralized, with resources being allocated through a large number of goods and services markets. The MARKET synchronizes the decisions of buyers and sellers and, by establishing an EQUILIBRIUM PRICE, determines how much of a good will be produced and sold.
Advocates of free enterprise argue that a decentralized MARKET-based system leads to a more efficient allocation of productive resources in line with the demands of buyers and that in pursuit of individual self-interest (the profit motive) it will produce economic results (lower costs and prices, innovative new products) that are beneficial to society as a whole. Critics of private-enterprise economies argue, however, that market-based economies may not fully respond to the demands of buyers where supply is in the hands of powerful suppliers (see MONOPOLY), that it cannot ensure the provision of COLLECTIVE PRODUCTS for which no market exists, that it can generate POLLUTION and other EXTERNALITIES and that it leads to gross inequalities in INCOME DISTRIBUTION. (See PRICE SYSTEM.) See CENTRALLY PLANNED ECONOMY, MIXED ECONOMY, NATIONALIZATION, PRIVATIZATION, LAISSEZ-FAIRE.